Monthly Archives: October 2017

I hope this message finds you all well. Over the last week, OPEC has continued to promise that they will work together to draw down the glut of crude across the globe. These statements are feeding the floor of $50/barrel set for WTI. However, the U.S. is continuing to export record amounts of crude oil. As long as the exports of crude from the U.S. continue to be strong and the spread between WTI and Brent remain large, OPEC will have to extend cuts in order to draw down global inventories. Without a major demand increase event, I don’t see much more upside left in WTI this year. The only major geopolitical event sizzling out there is the Northern Iraq conflict with the Kurds over the control of the oil fields and pipeline feeding Turkey. If this conflict escalates into civil war, we could see a bump up in crude prices across the board. In addition, at these current prices speculators have now made money on the WTI trade, so as we go into the end of the year some speculators might exit positions and cash out knowing that their starting base price for next year is already at a potential peak with not a lot of upside potential. In addition, demand tends to decrease going into winter causing another headwind for crude prices.

In local news, the November contract reference month finally expired at the Chicago exchange, and spot prices fell accordingly as I predicted. I still see about 10-15 cents of inflated spot pricing on both gas and diesel out of the Chicago exchange. So I would expect to see retail prices start to ease going towards Thanksgiving as long as some major supply or geopolitical issue doesn’t surprise the crude market. Gasoline prices are averaging around $2.37/gallon in the area and diesel is averaging around $2.75/gallon.

Propane has found some temporary support with corn drying demand and some colder weather. Delivered prices are now again at a new high for the year. However, at these prices, manufacturing could possibly start switching to different chemicals for production giving some potential relief to the current propane price. For now, I am thinking we could see some lower prices on propane towards Thanksgiving, but higher again into winter. If WTI crude falls back below $50/barrel, we could also see some relief on propane price. But WTI will have to fall at least $3/barrel in order for that to occur.

As always, if you have any questions, comments, or concerns, please feel free to give us a call!

Geopolitical issues are back on the table for the first time this year. The Iraq army invaded the northern Kurdish area this week disrupting almost 500k barrels/day to Turkey. The Kurds claimed independence from Iraq, so Iraq is trying to secure all the oil production. This disruption is critical for Turkey who might be forced to buy elsewhere. In addition, President Trump is calling for a potential cancelation of the Iran nuclear deal. If the U.S. leaves the deal, sanctions could be imposed taking another 1MM barrels/day out of the market. And to top it off, OPEC is talking with Russia about extending cuts through all of 2018 and taking the ARAMCO IPO off the table. These issues are building temporary support for crude which has now held for the longest stretch of the year above $50/barrel. For now, I feel that crude has support at these levels until some of these geopolitical issues take direction. The U.S. is also continuing its decline of crude inventory which some feel is a bit bullish. However, the U.S. production remains strong and growing, so it’s kind of a wash for now going into lower demand season this winter.

Not everything is doom and gloom though. Propane prices have settled down a bit due to a lack of demand for corn drying. The lack of demand event has eased some tensions for low peak inventory going into the winter. So as long as crude stays in check, hopefully we have seen some of the highest prices already for propane. This is great news going into the winter, considering a month ago the picture was a bit darker.

In local news, the Chicago market has continued to run at almost a 15 cent spread on diesel compared to other regions. Many are blaming the farming harvest demand. Although diesel prices are at the highest prices of the year, I expect these prices to ease coming out of October. Gasoline also has about 10 cents to give coming out of October, so hopefully going into the holiday season, we will see lower retail prices on both gasoline and diesel. The only issue that could disrupt this potential decline in price would be another leg up in crude prices. So for now, time will tell.

As always, if you have any questions, comments, or concerns, please feel free to give us a call.

Well, WTI continues to be on a wild ride into the start of Q4. Statically, WTI falls on average 7% every Q4! So I was calling for a potential cap on the rally going into the end of Q3 and some profit taking would probably start to happen in Q4. Well, it didn’t take long. WTI lost over 6% on the first two days of Q4 and is now back below $50/barrel after just three days! Mind you, last week on Friday, many folks were calling for no reason that WTI wouldn’t soar to $60/barrel by the end of this week! It just goes to show you always need to look at the facts. The facts are that no real demand scenario has occurred. Production continues to be strong. The U.S. continues to add oil rigs. And OPEC actually INCREASED production in September instead of cutting as promised. The pact between OPEC and non-OPEC members is starting to get really strained since the U.S. came out stating that they are making money above $30/barrel. Now many members of OPEC are believing that cutting production is only putting money in the pockets of the U.S. Regardless, WTI is in for some wild swings but within a tight range. The “over $50/barrel” and “falling under $50/barrel” is going to be the fulcrum for a bit.

In local news, gasoline prices and diesel prices are holding steady. Demand for the fall harvest is starting, so we can expect to see diesel and gasoline prices stabilize as local demand increases. Propane prices seem to be holding steady as well. With our recent heat waves, the corn drying demand seems to be dropping a bit which is helping to ease the recent price rally. However, just today, Europe bought a TON of future propane barrels causing a knee jerk 5% increase in cost. I’m curious to see if this was a temporary spot play by Europe or more of a long-term buying practice going into the winter. If so, we could still see some more upside risk with propane. If you have not locked in your propane prices, I would still advise doing so.

As always, if you have any questions, comments, or concerns, please feel free to give us a call.